PRECIOUS-Gold slips on dollar strength; US data eyed for Fed rate cut cues

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Israel vows response to Iran missile attack

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U.S. ADP employment report later in the day

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By Daksh Grover

Oct 2 (Reuters) - Gold prices eased on Wednesday as the dollar held firm, while investors looked for more U.S. economic data for further cues on upcoming rate cuts by the Federal Reserve.

Spot gold was down 0.5% at $2,649.17 per ounce, as of 0648 GMT.

U.S. gold futures eased 0.7% to $2,670.30.

The dollar held onto its sharpest gain in a week on Wednesday as investors worried about a widening war in the Middle East.

A stronger dollar makes greenback-priced bullion more expensive for other currency holders.

Trading volumes for gold were thin as China and India were closed for holidays.

Market participants will now monitor ADP employment data and remarks from Fed officials later in the day, along with ISM services data and nonfarm payrolls (NFP), due later this week.

There's a reasonable chance that both ISM and NFP reports could surprise to the upside, which could topple gold from current levels on reduced bets of aggressive Fed easing, said Matt Simpson, senior analyst at City Index.

Traders see a 65% chance of a 25-basis-point Fed cut in November and a 35% chance of a 50-bp cut.

"Unless tensions in the Middle East escalate further, I suspect gold will remain beneath its record high and provide choppy trading conditions as we await data," said Simpson.

Bullion, which is considered a safe investment during times of political uncertainty, rose more than 1% on Tuesday after Iran's attack on Israel.

Israeli Prime Minister Benjamin Netanyahu promised that arch foe Iran would pay for its missile attack against Israel, while Tehran said any retaliation would be met with "vast destruction", prompting fears of a wider war.

Meanwhile, physical demand for gold in key markets has dropped due to high prices, with some retail consumers selling their holdings to lock in profits, industry players and analysts said.

Spot silver shed 0.8% to $31.17 per ounce, platinum was steady at $986.43 and palladium rose 0.5% to $999.94.

(Reporting by Daksh Grover in Bengaluru; Editing by Alan Barona, Sherry Jacob-Phillips and Sonia Cheema)